Business Channel 2007-09-20&09-22, 美联储四年首度降息（在线收听）

Alright, you people cutting fifty basis points on the fed funds rate, / fifty basis points on the discount rate. And now the question did they get it right. Well, who better to ask than two people who have been in that room in their frist television appearance since retiring from the fed let's bring in former fed governor Susan Bies, Robert Mcteer, former president of the Dallas Fed also with us, and there could be no better time to have both of you with us with your perspective. Susan, you were there through March and your comment was…I…it isn't clear to me that Fed has to cut at this meeting and yet we got fifty on both rates, are you surprised? Did they make a mistake?

Well, I am surprised at the fifty basis points on the Fed funds rate. I didn’t think that they needed to go that aggressively on the Fed funds rate; I think the discount rate was a welcome change. But the Fed funds rate did surprise me to go fifty. I would guess that what is based on the statement is what they are concerned about, is the forecast. We know that a large part of this mortgage difficulty is only going to get worse in the next year or two, as we continue to have more and more of the teaser rate mortgages repricing upward by a couple points or more for many borrowers. And so the impact on the housing sector is only gonna intensify. And my guess is by going all at once now they are trying to jump ahead of what they are likely to see in the housing impact.

And Bob, where do you fall on this debate that Steven Leason was just raising which is, just, is this the Fed's effort to say here we go, we are gonna surprise everybody, we are gonna throw out a big cut ,exclamation point, we are done or they did not say they are done.

Well, as we learned the other day, Fed people don’t use exclamation point until they retire. Ur…I think, I think it was natural for them to make that reference and there might have been a little bit of a bone to throw to some potential dissenters in it. But let’s face it, inflation is still an issue. However, I think they did exactly the right thing, and they did what I call for them to do in my latest blog posting if you wanna look it up.

I did look it up, I, I've read it. I see it here you were completely right. Susan, can I ask you a question though? Since you were there in March, how much dissent was there, in your view, in the room when they went through this decision? Beacuse this wasn't what everybody expected, no one knew what to expect, so I can’t imagine it was easy and everyone says “Ok, unanimous fifty, fifty!”

I would think there would have been a fairly robust discussion around the table. Now There is few new members around the table from the time I was there, we've got a couple of new presidents in the room. And I don’t really know where they may stand on this. But I think the fact that we have such an unprecedented experience going on in the subprime market. Usually when we have problems with mortgage defaults we are in a general recession. And that isn't happening here. It also hits when interest rates are rising quickly. That isn’t happening. These are all due to the structure of the individual mortgage loans and the teasier periods that they had. So that makes it difficult to relook at past history to do the forecast. So I imagine part of the discussion was around how to look at the forecast about the broader economic impact. Coz a lot of companies are still reporting good earnings, retail sales are good, so the economics in the real economy right now are looking like they are still sound outside of the housing market.

Bob, what about another issue that you raised in your blog? You said the reluctance to borrow, you are saying if we cut interest rates, people may be more interested in borrowing money, but it won’t solve the bigger picture problem which appears to be a reluctance to lend which as you are saying in your blog is not helped by lower interest rate. It almost makes me think the Fed isn't really relevant here they can’t solve the problem

Well if this thing leads to a recession and I do think the odds of that have gone up considerably, the easing will help moderate the recession or might even help ward it off. I do think though that this is a little bit of different kind of credit crunch. Back in the early nineties that credit crunch involved both the reluctance to lend and the reluctance to borrow. As far as I know right now, it’s only lenders that are afraid to lend, borrowers are eager. And you don’t really stimulate lending by lowering interest rates.

Alright, well, Susan and Bob, thank you very much. Very intersting, we'll continue to dissect this decision.

Notes:

Teaser Rate: A very low but very temporary introductory rate on an adjustable rate mortgage or credit card.